Ahmedabad-based multi-specialty hospital chain Shalby Hospitals, which is operated by Shalby Ltd, on Friday filed its draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) for an initial public offering (IPO).

The public issue will comprise fresh sale of shares worth Rs 580 crore besides a partial sale of shares by promoter Vikram I Shah out of his 9.85% stake in Shalby, according to the DRHP.

The total issue size is estimated at Rs 600-620 crore ($97 million) which may result in a stake dilution of 15-18% on post-offer basis, said a person with direct knowledge of the matter, requesting anonymity.

Shah will sell 1 million shares and his shareholding will decline to roughly 7.5% on a post-offer basis. This values the firm around Rs 4,100 crore ($635 million) based on the estimated fundraising.

VCCircle had first reported in September last year that Shalby was eying an IPO and was in the process of hiring merchant bankers.

Shalby will be part of a growing number of healthcare companies that have opted to raise capital via an IPO in recent times.

Bangalore-based hospital chain Narayana Healthcare raised $95 million through a public offering in December 2015 while oncology chain HealthCare Global Enterprises Ltd went public in March 2016 with a $100-million IPO. Aster DM Healthcare also filed a draft proposal in July 2016 for a $300-million listing. It, however, postponed its IPO plans.

Several drugmakers and diagnostic companies have also gone public over the past year.

Here’s a snapshot of Shalby Hospitals’ IPO

Issue:

The public issue will comprise fresh sale of shares worth Rs 580 crore besides an offer for sale of 1 million shares by promoter Vikram Shah.

Shah’s shareholding will decline to roughly 7.5% on a post-offer basis compared with 9.85% stake currently. Total promoter holding will decline to roughly 83-85% post the infusion of fresh shares after the IPO.

Use of proceeds:

Shalby aims to use the proceeds from the IPO to repay certain borrowings availed by the company besides purchasing medical equipment for existing, recently set-up as well as upcoming hospitals. The company also aims to spend the proceeds towards the purchase of interior and infrastructure for upcoming hospitals besides leaving a portion for general corporate purposes.

Shalby’s chief executive officer Ravi Bhandari in an earlier conversation with VCCircle had hinted at enhancing its focus on west and central India, including in cities such as Ranchi, Bhopal and Pune.

Though Shalby has not been active on the acquisition front of late, in 2011 and 2012, it acquired a string of small hospitals, such as Vrundavan Hospital and Research Centre, Usha Hospitals and Krishna Hospital, as per VCCEdge, the data research arm of News Corp VCCircle.

In February 2016, Shalby had signed a joint venture with Dubai-based RAK Hospitals for joint replacement surgeries.

Bankers:

Edelweiss Financial Services, IDFC Bank and IIFL Holdings are the book-running lead managers for the IPO.

Lawyers:

Khaitan & Co is representing the company as its legal counsel while BMR Legal is representing the merchant bankers on the IPO deal.

Company:

The hospital chain was founded in 1993. It focuses on primary and secondary medical and surgical services. It gets half its revenues from hip and knee joint replacement surgeries. Other specialities include cardiology, endoscopy, endocrinology, gastroenterology, neurology, obstetrics and nephrology. The company conducts around 8,000 joint replacement surgeries a year.

Shalby has 11 hospitals, including eight fully operational and three recently set-up hospitals. It had an aggregate bed capacity of 2,102 beds as on 31 March 2017, according to DRHP.

It was aiming to cross 2,500 beds by the end of 2017, according to its website.

The hospital chain enjoyed a 15% market share of all joint replacement surgeries conducted by private corporate hospitals in India in 2016, according to a Frost & Sullivan report.

The company has been constructing a 250-bed hospital in Jaipur, a 200-bed hospital in Surat and a 235-bed hospital in Ahmedabad. The firm also plans to expand its presence in Mumbai.

Financials:

Shalby reported a consolidated net profit of Rs 45.87 crore for the nine months ended 31 December 2016 on revenues (from operations) of Rs 240.58 crore, according to the DRHP.

The company posted revenues (from operations) of Rs 289.39 crore for FY2016-17 compared with Rs 274.73 crore in the year ago.

Its net profit stood at Rs 36.47 crore for FY2015-16 compared with Rs 24.55 crore in the previous year.

Its total debt stood at Rs 70.27 crore as on 31 December 2016, the DRHP showed.